In re Moffat, BAP No. CC-89-2062-POMe

• Decision Date: 31 August 1990
• Docket Number: BAP No. CC-89-2062-POMe,Bankruptcy No. LA 88-20019-KM.
• Citation: 119 BR 201
• Parties: In re Gordon H. MOFFAT, Debtor. Gordon H. MOFFAT, Appellant, v. David R. HABBERBUSH, Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Ninth Circuit

119 B.R. 201 (1990)

In re Gordon H. MOFFAT, Debtor Gordon H. MOFFAT, Appellant, v. David R. HABBERBUSH, Appellee.

BAP No. CC-89-2062-POMe, Bankruptcy No. LA 88-20019-KM.

United States Bankruptcy Appellate Panel of the Ninth Circuit.

Argued and Submitted on June 25, 1990.

Decided August 31, 1990.

Richard M. Moneymaker, Los Angeles, Cal., for appellant.

David R. Haberbush, Los Angeles, Cal., for appellee.

Before PERRIS, OLLASON and MEYERS, Bankruptcy Judges.

OPINION

PERRIS, Bankruptcy Judge:

This appeal concerns the bankruptcy trustee's objection to the debtor's claimed exemption in a $190,000 single premium immediate annuity. The bankruptcy court determined that the subject annuity is a matured annuity and not reasonably necessary to support the debtor and his spouse and therefore was not exempt 107 B.R. 255. The debtor appeals from the order. We affirm.

FACTS

The debtor, Gordon H. Moffat ("the debtor") is a practicing orthodontist who earns a gross monthly salary of approximately $5,000 and monthly take-home pay of approximately $4,000 from his wholly owned and operated professional corporation. In addition, the debtor receives $1,000 — $1,500 a month as a consultant for an insurance company and $800.00 a month in Social Security payments. The debtor's wife receives a gross monthly salary of $600. Although the debtor testified that he was developing glaucoma and had health problems in the past, there is no medical opinion evidence that this, or any other condition, will impair the debtor's practice, nor any testimony that the debtor would be otherwise unable to continue to carry on his practice for the foreseeable future.

On February 5, 1988, the debtor and his spouse created "The Gordon H. Moffat and Barbara B. Moffat Living Trust" ("Living Trust"). The debtor, his spouse and their children are the trust beneficiaries. The debtor transferred title of his personal residence to the Living Trust.

On February 28, 1988, the debtor borrowed $300,000 against his home and utilized $190,000 of the proceeds to purchase a single premium immediate annuity policy ("the annuity" or "the policy").¹ The policy's issue date is June 28, 1988, and its effective date is July 1, 1988. The policy calls for a minimum of 40 quarterly payments of $4,370.00 to commence on October 1, 1988. The debtor, as the designated "owner" and annuitant is entitled to receive these payments for as long as he lives. In the event the debtor dies before receiving the 40 quarterly payments over the 10 year period, the policy's designated beneficiary, the debtor's spouse, will receive the remaining payments.

Subsequently, the debtor transferred his ownership interest in the annuity to the Living Trust. The debtor testified that he and his spouse created the Living Trust and purchased the annuity on the advice of counsel in order to keep his creditors from reaching these assets by maximizing allowable exemptions. Prior to the above transaction, the debtor had a monthly mortgage payment of only $1,600.00. After this transaction, the debtor has a monthly mortgage payment of $2,600.00. The debtor maintains that he needs the $4,370.00 quarterly annuity payment in order to service the debt on his home.

The debtor filed a Chapter 7 petition on September 21, 1988 and claimed as exempt, inter alia, the annuity under California Code of Civil Procedure ("C.C.P.") § 704.100. The Chapter 7 Trustee, David Habberbush, ("the trustee") objected to this claimed exemption. Following an evidentiary hearing, the bankruptcy court entered a Memorandum Decision that, inter alia, disallowed the debtor's claimed exemption in the annuity. The debtor filed this timely appeal.

ISSUES

The ultimate issue in this appeal is whether the debtor is entitled to claim an exemption in the annuity under C.C.P. § 704.100. Resolution of this issue requires consideration of two sub-issues:

(1) Whether the annuity had matured prior to the date of the petition; and

(2) Whether the payments received from the annuity are reasonably necessary for the support of the debtor and his spouse.

STANDARD OF REVIEW

Whether the annuity matured prior to the date of the petition is a legal question. Such a question is subject to de novo review. See In re Lewis, 79 B.R. 893, 895 (9th Cir. BAP 1987). Whether the annuity is reasonably necessary for the support of the debtor and his spouse is a factual question that we review for clear error. See Bankruptcy Rule 8013.

DISCUSSION

California Code of Civil Procedure, section 704.100 provides, in relevant part, as follows:

(a) Unmatured life insurance policies (including endowment and annuity policies), but not the loan value of such policies, are exempt without making a claim.

* * * * * *

(c) Benefits from matured life insurance policies (including endowment and annuity policies) are exempt to the extent reasonably necessary for the support of the judgment debtor and the spouse and dependents of the judgment debtor.

The bankruptcy court determined that the exemption was not available under section 704.100 because the annuity had matured and the payments are not reasonably necessary for the support of debtor and his spouse. The court alternatively concluded that even if the annuity had not matured, the debtor could not claim an exemption in any interest in the annuity because section 704.100(a) exempts only the ownership interest in unmatured annuity policies and the payments which the debtor sought to exempt were part of the beneficial interest.² We do not consider the bankruptcy court's analysis of the exemption of unmatured annuity policies under section 704.100(a) because the bankruptcy court did not commit reversible error in determining that the annuity at issue matured prior to the date of the petition and that the annuity is not reasonably necessary for the debtor's support.

1. Whether the annuity had matured prior to the date of the petition.³

The debtor contends that the annuity had not matured as of the date of the petition because maturity requires that there be no further conditions to payment and the debtor's continued life was a condition to the payments. The Trustee contends that the annuity had matured because all contingencies prerequisite to payment had occurred prior to the petition. Neither the parties nor the court cite relevant case law dealing with maturity date of an annuity. Our research similarly uncovered no case law. Based upon the fundamental characteristics of annuities, the particular characteristics of the annuity at issue and the plain meaning and application of the term "mature", we believe that the annuity at issue matured prior to the date of the petition.

An annuity contract, in general, is one by which an annuitant makes an investment which will assure his receipt of a specified annual or quarterly sum during his life and if he should die prematurely, his estate or those whom he designates will receive the payments he has not yet received. See, e.g., Garos v. State Tax Commission, 99 N.H. 319, 321, 109 A.2d 844, 847 (1954). A fundamental characteristic of an "annuity" is a periodic payment made unconditionally without any contingency. In re Luckel's Estate, 151 C.A.2d 481, 487, 312 P.2d 24, 29-31 (1957).

Annuities are classified upon various bases, including the structure of payments made to the annuitants. See generally California Insurance Law and Practice §§ 20.20-20.21 (Matthew Bender 1990) (hereafter "California Insurance"). Classification according to the structure of payments made to annuitants depends upon factors such as the events which trigger the discontinuation of payments⁴ and, more importantly for purposes of determining maturity, the commencement of the benefits paid to an annuitant. See California Insurance § 20.212-3.

With regard to the commencement of benefits, there are two types of annuities: (1) immediate annuities, in which the payment of benefits begins a short period of time after the premium has been paid to the company, usually at the beginning or end of the first income period; and (2) deferred annuities, in which the payment of benefits begins on some future stated date. Id. at § 20.213. As stated in California Insurance, § 20.213b, "deferred annuity contracts permit the annuitant to delay the maturity date of the annuity (the date on which payments commence) . . ." Although neither California Insurance nor other authorities discussed the definition of maturity with respect to annuities, the quoted statement conveys the impression that it is generally accepted that the maturity date of an annuity is the date upon which the benefits under the annuity begin to accrue and that an immediate annuity will be mature upon its effective date.

In this case, the annuity at issue is designated on its face as an immediate annuity. This designation is consistent with the annuity's terms because it took effect on July 1, 1988, three days after the issue date and the initial quarterly payment was to be made on October 1, 1988, at the end of the initial quarterly income period. Thus, although the initial payment was not to be made until October 1, 1988, the benefits, as well as the right to payment commenced on July 1, 1988, the beginning of the quarter for which the initial payment was made, and the annuity matured on that date.

This conclusion is also consistent with the plain meaning of "maturity" and similar terms. Black's Law Dictionary defines "maturity" as "the date at which . . . an obligation becomes due" and defines a "matured claim" as a "claim which is unconditionally due and owing." Black's Law Dictionary 883 (5th Ed. 1979). In this case, the company's duty to pay arose on the effective date of the annuity, even though the first payment was not to be made until three months later. Although it was not certain that the payments would be made to the debtor, as opposed to his designated beneficiary if he died within the 10 year period, on the July 1 effective date, there...